Knuckey, Ross Randall v Commissioner of Taxation

[1997] FCA 939

FEDERAL COURT OF AUSTRALIA

INCOME TAX - Powers of Commissioner - General administration of Tax Act - Work Related Expenses Audit Program - Validity - Subjection of selected tax agents to Program - Whether exercise of power for improper purpose.

ADMINISTRATIVE LAW - Review of administrative decisions - Work Related Expenses Audit Program established by Commissioner of Taxation - Validity - Subjection of selected tax agents to Program - Whether decision under enactment - Whether exercise of power for improper purpose.

Income Tax Assessment Act 1936 ss8, 17, 161, 162, 163, 165, 166, 167, 169, Pt VIIA Div 3
Income Tax Regulations reg 16(3)
Administrative Decisions (Judicial Review) Act 1977 s3(1)
Judiciary Act 1903, s39B

Balnaves v Deputy Commissioner of Taxation (SA) (1985) 61 ALR 509
Hutchins v Commissioner of Taxation (1996) 65 FCR 269
Salerno v National Crime Authority (1997) 144 ALR 709
Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499
Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649
Thompson v Randwick Corporation (1950) 81 CLR 87
Samrein Pty Ltd v Metropolitan Water Sewerage and Drainage Board (1982) 41 ALR 467
Shop Distributive and Allied Employees Association v Minister for Industrial Affairs (SA) (1995) 183 CLR 552

ROSS RANDALL KNUCKEY v THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
VG 432 of 1997

SUNDBERG J
MELBOURNE
15 SEPTEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 432  of   1997
GENERAL DIVISION

BETWEEN:	ROSS RANDALL KNUCKEY APPLICANT
AND:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT

JUDGE:	SUNDBERG J
DATE OF ORDER:	15 SEPTEMBER 1997
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The amended application for an order of review be dismissed.

2. The applicant pay the respondent’s taxed costs of the application.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 432 of 1997
GENERAL DIVISION

BETWEEN:	ROSS RANDALL KNUCKEY APPLICANT
AND:	THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT

JUDGE:	SUNDBERG J
DATE:	15 SEPTEMBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

THE APPLICATION

By his amended application the applicant seeks review under the Administrative Decisions (Judicial Review) Act 1977 (“the ADJR Act”) of, inter alia, the decision of the respondent (“the Commissioner”) that the applicant be subject to the requirements of the Work Related Expenses Audit Program (“the Program”) in respect of certain income tax returns to be prepared and lodged by him in relation to the year of income ended 30 June 1997 in which deductions under the Income Tax Assessment Act 1936 (“the Act”) are claimed for work‑related expenses.

The applicant is a registered tax agent.  He claims he is aggrieved by the decision because it has resulted in some of his clients taking their work to other agents who are not subject to the requirements of the Program, thereby adversely affecting his income, and because the Program has involved him in extra work for which he has not been able to charge his clients.
The applicant has pursued only one of the grounds in the application.  He contends that the decision is

“an improper exercise of the powers conferred by the Act and the regulations namely:

(i)the Respondent exercised his power to require taxpayers to produce information and documents for the improper purpose of disciplining or educating tax agents;

(ii)the Income Tax Assessment Act 1936 does not authorise the Respondent to require tax agents to take part in the work related expenses program.

The applicant claims orders setting aside the decision and directing the Commissioner to refrain from implementing it. He also seeks a declaration that the Act does not authorise the Commissioner to require tax agents to take part in the Program. In the alternative a writ of prohibition is sought under s39B of the Judiciary Act 1903.

THE LODGMENT PROGRAM
The Commissioner administers a program for the lodgment of income tax returns prepared by registered tax agents known as the Lodgment Program. The Lodgment Program assists registered tax agents and their clients by allowing extra time for the lodgment of returns prepared by the agents. This is done via a timetable for lodgment set by the Commissioner. The Lodgment Program enables a progressive pattern of lodgments to be made by registered tax agents, and avoids any large build‑up of returns. The Lodgment Program is a concession given by the Commissioner to registered tax agents to allow them to handle their workload throughout the lodgment year. Taxpayers who use registered tax agents to prepare and lodge their returns are able to lodge them later than otherwise required by the Act, without being liable to a late lodgment penalty. The viability of the practices of registered tax agents will often depend on the agents being in the Lodgment Program, for without the extra time for lodgment they would not be able to service as many clients as they in fact do. They would be forced to limit their practices to the number of clients for whom they could prepare income tax returns within the limited time applicable to taxpayers who prepare their own returns as opposed to over the entire period of the tax year. To remain on the Lodgment Program a registered tax agent must comply with the requirements thereof as they applied to returns for the previous year of income. Failure to do so will result in the imposition of a tighter timetable for lodgment, and if the failure to comply is significant enough, in the agent being taken out of the Lodgment Program. If that happens, the agent will have to lodge returns as if they had been prepared by taxpayers personally, that is without the benefit of extra time under the Lodgement Program.

The Lodgment Program is sustained by s161(1)(c) of the Act: Balnaves v Deputy Commissioner of Taxation (SA) (1985) 61 ALR 509. Although the present case does not directly involve the Lodgment Program, its existence is an important background consideration, since a tax agent’s ability to take advantage of the Lodgment Program depends on a favourable exercise of the Commissioner’s discretion under s161(1)(c).

THE WRE PROGRAM
In June 1995 the Commissioner wrote to all tax agents about the level of incorrect claims for work‑related expenses.  The letter contains these passages:

“...

Over 80% of the value of work‑related expenses are in returns lodged by tax agents.  Because of this I am asking for your assistance in ensuring people get deductions they are entitled to but not more than that.

...

I also hope that you will take the care to ask the relevant questions to satisfy yourself that claims being put to you by your clients are legitimate, that the expenditure has been incurred for deductible purposes and that any necessary documentary evidence is available.  Clients should be made aware of the consequences of making false claims.

By doing this you will help ensure that taxpayers claim the right deductions, that they do not face difficulties in the event that they are selected for audit and that more generally, taxes payable under our laws are being fairly distributed.  To assist you in this area we will provide you with a copy of our audit work‑related expenses questionnaire in the July update of the Tax Agent Portfolio.

...

Our approaches will involve the scrutiny of a sample of returns prepared by a tax agent.  By comparing the claims in those returns with the previous year claims of the same taxpayers and the claims of other clients of the agent, indications about areas of possible concern will become evident.  In most instances we will provide the names of those clients whose returns are to be reviewed prior to lodgment.  Senior staff will visit the agent to discuss the findings.  This year we will be sampling the returns of around 1,500 tax agents in this way.  Over the coming years most agents will be covered.

...

For those agents where there is evidence that clients are overclaiming deductions and there is no evidence of a desire to improve the standard of return form preparation following sampling and discussion of results, further action will be considered.  For example our audit program may focus on a greater number of the clients of such agents, and appropriate cases may be referred to the Tax Agents Board.

...”

In June 1996 the applicant was informed that he would be required to participate in the Program in respect of returns prepared by him in relation to the year ended 30 June 1996.  He was provided with a list of thirty of his clients whose returns were to be subject to the Program.

At a meeting with representatives of the Commissioner on 1 July 1996 the applicant was told that the Program would involve him collecting all original receipts that substantiated work‑related expenses claimed by his clients.  He would then list the details on a Substantiation Form, and send it and the original receipts to the Commissioner.  The applicant’s existing lodgment program would be varied so that all relevant returns would be lodged by 31 December 1996.

On or about 22 November 1996 the applicant received a letter from the Commissioner.  It repeats some of the matters in the June 1995 letter, but otherwise the material passages are as follows:

“There is evidence of a widespread problem involving documentary evidence which could translate into agents developing a variance between the average work related expense claims of their audited clients and that of their wider client base.  In some cases, this problem may be so significant that it could result in agents being classified as ‘failing’ the Program.

...

We believe that adopting an appropriately professional standard of procedures for preparing taxation returns for all clients, including checking the existence of documentary evidence, decreases the likelihood of incorrect claims being made.  Therefore, we are encouraging professional work practices wherever possible.

It must be emphasised that the ATO does not expect an agent to sight documentary evidence in every case before making a claim on behalf of a client.  However, I believe that some agents could do more to satisfy themselves that their clients have incurred the relevant expense and possess the documentary evidence.  Obviously it is in the clients’ interests to answer their agents’ questions on this topic when the returns are being prepared rather than answer ATO questions under audit and face costs and possible penalties.”

On 21 May 1997 the applicant met with representatives of the Commissioner.  According to the applicant, he was informed that he would be required to remain on the Program in relation to the year of income ending 30 June 1997 since he had “failed the discrepancy test of the ATO”.  He was told that a statistical analysis of his participation in the Program for the years ended 30 June 1995 and 30 June 1996 by reference to the sample thirty clients showed that the total quantum claimed by the sample clients in the 1996 year was 45 per cent less than that claimed by them in the 1995 year.  On the other hand, the total quantum of the work‑related expenses claimed by the remainder of the applicant’s clients in the 1996 year increased by 2 per cent over that claimed in the 1995 year.  The Commissioner’s representatives told the applicant that the statistical analysis showed that the decrease in work‑related expenses claimed by the sample thirty clients was directly attributable to their being aware that they were being audited pursuant to the Program for the 1996 year.  The applicant was also informed that the discrepancy between the results for the sample clients and his other clients was unacceptably high, and reflected a lack of bona fides in the work‑related expenses claimed by the other clients and an unacceptable standard of income tax return preparation by the applicant.

Correspondence ensued between the applicant and the Commissioner.  It included a letter from the Commissioner dated 3 July 1997.  Again omitting matter contained in the earlier letters, the following parts of the letter are material:

“...

What we are attempting to do is to change the behaviour of some taxpayers and, in some cases, tax agents in their approach to WRE claims.  Our research tells us that WRE claims across the board are approximately 24% more than they should be.  That is to say, the WRE claim ‘benchmark’ is higher than it should be.

...

We are not questioning the honesty and integrity of tax agents, indeed feedback from agents consistently points to reasons for adjustment being attributable to ‘what the client advised’.  Part of the answer would seem to be that some clients need to be educated on broad deductibility issues and better record keeping habits.  I accept that tax agents may well honestly believe that they are applying standards that are appropriate, however our research is clearly telling us that these can be improved in some quarters.

...”

Accompanying the letter was a list of the applicant’s clients who had been selected to participate in the Program for the 1997 year and an explanatory letter from the Commissioner to each client, which the applicant was expected to send to the client. This letter required the client, pursuant to Div 7 Sch 2B of the Act, when lodging the 1997 income tax return, to provide written evidence of work‑related expenses and a Deduction Substantiation Form for each category of expense. The client was also asked to provide information about how the expenses claimed related to the client’s work, and to complete an attached Work Expenses Questionnaire. The Substantiation Form contains a declaration for completion by the client, and one for completion by the tax agent stating that the agent has explained to the client “all the information they may need to accurately complete this form”.

The 3 July letter was also accompanied by two pro forma letters from the Commissioner to tax agents.  Neither is dated.  It is not necessary to refer to the second letter  The first contains these passages, amongst others:

“As you may know, the ATO is about to enter the third year of a program whereby returns lodged by tax agents with WRE claims, are being examined to determine the return form preparation standards of those tax agents.

...

Results of the program to date indicate that the overclaiming of deductions by the clients of tax agents is about 25%.  Given the level of overclaiming and the significant influence that tax agents have on the correctness of returns, they are a key leverage point and area of focus for the ATO in improving compliance in the area of work related expenses.

...

Approximately 2500 tax agents have participated in the program to date with approximately 30% of these requiring further attention.  Measures to try and address what we view as deficiencies in return form preparation include requiring these agents to complete and lodge with us schedules explaining the nature of WRE claims they are making for clients.

...

An important adjunct to the various audit techniques that have emerged during the course of the program is our introduction of the “Schedule of Work Expenses”.  Whilst the completion and submission of this Schedule for clients is something we are only requiring of these agents we adjudge require further attention, we also believe that it may be useful for all tax agents when discussing WRE claims with their clients.

...”

Another document prepared by the Commissioner which throws light on the Program is headed “Work Related Expenses Audit Program Update March 1997”.  It contains these passages:

·   “1380 tax agents were on the program in the first year and of those approximately 140 will not have met ATO standards in two successive years ‑ ie they have “failed” the program twice.

...

·   The ATO believes that asking these agents to complete schedules is essentially no more than what an agent taking due care in return form preparation should be doing anyway, whatever the method they may use.  In relation to these agents, the ATO is of the view that some formality, in the way they approach the accuracy of information collection, needs to be undertaken.  The ATO believes that agents should properly question clients about the legitimacy of their claims and whether documentation to support claims exists.  The questions asked on the work expenses schedule are reasonable to help establish deductibility.

...

·   The objective of the program is to improve current and future compliance with the law in the area of work related expenses by sampling the returns prepared by most agents with a view to systematically and objectively identifying those agents whose standards are below what the ATO expects.

...”

LEGISLATION
Section 161 of the Act requires a taxpayer to furnish to the Commissioner a return containing information in relation to the income and profits or gains of a capital nature derived by the taxpayer and any deductions or losses, being losses of a capital nature, claimed by him. Section 162 obliges a taxpayer, if required by the Commissioner, to furnish a return or a further or fuller return, of the income or any part of the income derived by him in any year. Under s163 every person, whether a taxpayer or not, if required by the Commissioner, must furnish any return required by him for the purposes of the Act. Section 165 requires any person who charges a fee for preparing a return to sign a certificate in the prescribed form setting out such information as to the sources available for the compilation of the return as is prescribed. Regulation 16(3) of the Income Tax Regulations prescribes the form of the certificate:

“I, [full name of tax agent], having charged a fee for preparing or assisting in the preparation of this return, hereby certify that this return has been prepared in accordance with the information supplied by the taxpayer.  The following books of accounts were maintained by or on behalf of the taxpayer ....”

Part VIIA of the Act deals with tax agents. Division 2 establishes the Tax Agents’ Board. Division 3 provides for the registration of tax agents. Subdivision H deals with the cancellation or suspension of registration. Section 251K(2) empowers the Board to suspend or cancel the registration of a tax agent upon being satisfied, amongst other things, that

(a)any return which has been prepared by or on behalf of the tax agent is false in any material particular; unless the tax agent establishes to the satisfaction of the Board that he had no knowledge of the falsity or that the falsity was due to his inadvertence;

...

(d)if the tax agent is a natural person - the tax agent is not a fit and proper person to prepare income tax returns and transact business on behalf of taxpayers in income tax matters ....”

Where a Board makes a decision suspending or cancelling the registration of a tax agent, it must serve on him a notice setting out that decision and giving the reasons therefor.  A decision to suspend or cancel registration may be reviewed by the Administrative Appeals Tribunal: s251QA(d).

Division 7 is headed “Privileges and Duties of Registered Tax Agents”, and consists of ss251L to 251O. Section 251L prohibits unregistered persons from charging fees for preparing returns or objections. Section 251M enables a taxpayer who has incurred a fine, additional tax or interest through the negligence of a registered tax agent, to recover the amount thereof from the agent.

Subdivision GA of Div 3 of the Act contains the deduction substantiation provisions introduced in 1995. Amongst other things the Subdivision gives the force of law to the rules contained in Sch 2A and 2B. Section 7.1 of Div 7 of Sch 2B obliges a taxpayer who is required to retain records of an expense under the Schedule to retain them for five years. Section 7.3 empowers the Commissioner to give the taxpayer a written notice requiring him to produce records of expenses specified in the notice.

DECISION UNDER AN ENACTMENT?
By a notice of contention the Commissioner objected to the jurisdiction of the Court to hear the application on the ground that it does not identify as the subject of the proceeding any “decision under an enactment” within the meaning of the ADJR Act or any conduct engaged in for the purpose of making such a decision.

In answer to the contention the applicant identified three decisions said to have been made by the Commissioner. The first was to include the applicant in the Program. The second was to give the applicant’s clients a notice under s7.3 of Div 7 of Sch 2B. The third was to give the clients a notice under s162. Only the first “decision” is covered by the amended application. Alternatively, the first so called decision was described as “conduct” leading to the second and third decisions. The amended application does not cover this formulation of the case.

The Act does not confer any specific power on the Commissioner to establish the Program or to include people within it.  One of the questions considered in Hutchins v Commissioner of Taxation (1996) 65 FCR 269 was whether a decision by a Deputy Commissioner to vote against a motion put to a meeting of creditors under Pt X of the Bankruptcy Act 1966 was a decision “under an enactment” within s3(1) of the ADJR Act. Black CJ and Spender J held it was not. Black CJ, having referred to s8 (which provides that the Commissioner “shall have the general administration” of the Act) and to ss208 and 209 (which respectively make income tax payable to the Commissioner and enable him to sue to recover it), said:

“It is clear that there may be a decision “under an enactment” ... notwithstanding that the enactment concerned does not expressly require or authorise the decision in question but does so impliedly.

...

Where a decision is impliedly required or where the authorisation for a decision is to be implied in a context as specific as that of s6A(1)(c) of the Migration Act ... the enactment can be seen “to make provision” for the making of the decision.  Where, however, the authorisation is very general it is difficult to see how an enactment may be said “to make provision” for a decision in the sense in which that expression was used by Mason CJ in Bond at 337.  It seems to me that Mason CJ contemplated that there might be acts, capable of being called decisions, that were authorised in the sense of being within the general scope of powers conferred by an enactment but as to which the enactment could not be said to make provision, and which would therefore not be decisions under the enactment.

...

If a decision is neither expressly nor impliedly required by an enactment and, although authorised, is authorised by an enactment only in a very general way, it is unlikely to have the character of a decision for which provision is made under an enactment.  The connection between the text of the enactment and the decision is likely to be too remote for the decision to have the requisite character.

His Honour went on to say that the decision in question was impliedly authorised by s8 in combination with s208, but that those sections did not “make provision” for it. The relationship between the text of the sections and the decision was too remote and non-specific for it to be said that provision was made for it by the Act. Spender J, who agreed with the Chief Justice, said at 278:

“The fact that a decision is made within power, ie is not ultra vires a particular statute, does not in my opinion necessarily mean that the decision is a decision made under an enactment.  There is no identity between decisions made within power and decisions made under an enactment.”

Lockhart J dissented on this point. He thought that s208, read in conjunction with s8, impliedly authorised the Commissioner to do all things that are reasonably necessary to recover tax due to the Commonwealth, including voting at a meeting of creditors. Since the sections authorised the decision in question, it was made under an enactment (276‑277).

In Salerno v National Crime Authority (1997) 144 ALR 709 von Doussa, Drummond and Mansfield JJ applied the decision of the majority in Hutchins. Their Honours said at 718‑719

“The distinction which the Chief Justice drew in Hutchins between decisions that are authorised only in a general way by an enactment and those which are given force or effect by the enactment, in our opinion, gives proper effect to balancing the two competing policy considerations referred to by Mason CJ in Bond, which must inform the resolution of whether a particular determination is a decision made under an enactment ....

If a general authorisation in a statute for a decision by an organisation set up under that legislation is sufficient to make it a decision under the statute, and thus open to judicial review, every intra vires action of that organisation that has decisional effect and every kind of conduct engaged in by it for the purpose of making a decision will be examinable by the court.  The potential for massive disruption of the organisation’s activities that would be the consequence of such a conclusion is manifest.”

The Commissioner’s decision to establish the Program and to include the applicant in it is neither expressly nor impliedly required by the Act. It is authorised by the Act, but only in a very general way, by s8. In my view the connection between s8 and the decision is too remote for it to be said that the former makes provision for the latter. Accordingly, the only decision that is pleaded is not reviewable under the ADJR Act. As I have said, the “conduct” relied is not pleaded.
VALIDITY OF PROGRAM
The fact that the decision by which the applicant is aggrieved is not reviewable under the ADJR Act does not protect it from examination in proceedings under s39B of the Judiciary Act, since the Commissioner is an officer of the Commonwealth.

Although the primary focus of the applicant’s argument was on the decision to include the applicant in the Program, the validity of the Program itself was also attacked.  If the Program is invalid, it will not be necessary to examine the decision to include the applicant in it.  It is thus appropriate to consider first the validity of the Program.

Section 17 provides for the levy of tax upon a person’s taxable income derived during a year of income. That is the central provision of the Act and expresses its primary purpose. “Taxable income” is defined as the amount remaining after deducting from the assessable income all allowable deductions. Under s161(1) a taxpayer is required to furnish a return setting forth, amongst other things, the total income derived by him and any allowable deductions claimed. Section 166 requires the Commissioner, from the return and from any other information in his possession, to make an assessment of the amount of the taxpayer’s taxable income and of the tax payable thereon. Section 167 authorises the making of a default assessment where, amongst other circumstances, the Commissioner is not satisfied with the return lodged by a taxpayer. Section 8 charges the Commissioner with the general administration of the Act, which includes the making of assessments to tax (s169) and the recovery of tax payable by taxpayers pursuant to the Act (Pt VI Div 1). It is a principal function of the Commissioner to ascertain the taxable income of taxpayers. To do this he may need to make wide‑ranging inquiries: Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 536; Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 at 658.

The Commissioner’s resources do not extend to auditing the returns of every taxpayer.  He can at any time decide to look more closely at the affairs of particular categories of taxpayers, as well as of particular taxpayers, with a view to ascertaining the taxable income of a taxpayer, whether or not an assessment or amended assessment has issued.  Thus in Industrial Equity the High Court rejected a challenge by the taxpayer to the Commissioner’s decision to select it for an audit on the ground that the sole reason for its selection was that it was one of the top hundred companies.  At 661 in the joint judgment it was said:

“It may be the top hundred companies this time, primary producers another time, and property developers yet another time. IEL did not argue that the selection of the top hundred companies as a category for inquiry was necessarily improper; rather, the complaint was of the selection of IEL merely because it fell within that category. Inevitably, there will be a random aspect to those who are finally selected for closer examination; but the Commissioner will still be acting for the purposes of the Act so long as he is endeavouring to fulfil his function of ascertaining the taxable income of taxpayers.”

The ascertainment of taxable income may require the Commissioner to look to persons other than the relevant taxpayer for information bearing upon the taxable income of that taxpayer: Industrial Equity at 661.

The Program was established because research carried out by the Commissioner showed that many taxpayers whose returns were prepared by tax agents were claiming work‑related deductions to which they were not entitled.  The loss to the revenue was considerable.  The Commissioner took the view that the Program was likely to cause tax agents to counsel their clients to make deduction claims only if they could substantiate them in the required manner.  This, it was thought, would lead to fewer deduction claims, and thus to a greater number of taxpayers paying the tax which they ought to pay.  To use the words of the majority in Industrial Equity, in establishing the Program, the Commissioner was endeavouring to fulfil his function of ascertaining the taxable income of taxpayers.  Or as the Commissioner put it in the March 1987 update, the objective of the Program is to improve current and future compliance with the law in the area of work‑related expenses.

In my view the Program was validly established.

IMPROPER PURPOSE
The applicant attacks the decision to include him in the Program on the ground of improper purpose.  The argument was that the avowed purpose of the Program is to encourage registered tax agents to provide professional return preparation services to a standard satisfactory to the Commissioner.  As part of the Program the Commissioner requires agents to adopt standards and practices which allow the agent to make sure, by checking documentary evidence and other information, that work‑related expenses claimed by his client are justified and able to be substantiated.  The Commissioner’s power to require a taxpayer to provide him with returns, further returns, documents and information, is conferred on him for the purpose of making an assessment or amended assessment in respect of the taxpayer concerned.  Reference was made to some of the expressions used in the letters and document referred to above - “we are encouraging professional work practices”, “change the behaviour of some ... tax agents” and “tax agents ... are a key leverage point”, and it was said that this showed that the power to include tax agents in the Program has been exercised for the purpose of educating or disciplining tax agents.  That was said to be an improper purpose.  Reference was made to Thompson v Randwick Corporation (1950) 81 CLR 87 where the corporation had power to resume land for the purpose of improving and embellishing the area. Its resumption of more land than was required to construct a road was held to be for the improper purpose of making a profit on the sale of the part not so required.

It was also submitted that even if one of the purposes of the Program was to audit taxpayers, the other purpose, namely to improve the work practices of tax agents, was fatal to the Program.  In this connection reliance was placed on the following passage from the High Court’s judgment in Samrein Pty Ltd v Metropolitan Water Sewerage and Drainage Board (1982) 41 ALR 467 at 468-469:

“The critical question in the present case is whether the purposes for which the Board proposes to acquire the land are purposes of the Act. If the Board is seeking to acquire the land for an ulterior purpose, there will be an ostensible but not a real exercise of the power granted by the Act. The attempted exercise of power will be vitiated even if the ulterior purpose was not the sole purpose of the acquisition. It will be an abuse of the Board’s powers if the ulterior purpose is a substantial purpose in the sense that no attempt would have been made to acquire the land if it had not been desired to achieve the unauthorised purpose.”

It was submitted that on the facts the Commissioner would not have established the Program if he had not intended thereby to improve the professional standards of tax agents.

It was said that the only duty owed by a tax agent to the Commissioner is that set out in s165(1) and reg 16(3), namely to prepare the return in accordance with the information supplied by the taxpayer. It was pointed out that the function of supervising and controlling the professional activities of tax agents is reposed in the Tax Agents’ Board, and that in proceedings between the Board and a tax agent, the agent is protected by the safeguards expressed in or implied by the Act. That is to say, the Board is required to comply with the rules of natural justice, it must give reasons for its decisions (s251K(5)), the agent has a right of appeal to the Administrative Appeals Tribunal (s251QA), and he is probably entitled to legal representation before the Board. Reference was made to Shop Distributive and Allied Employees Association v Minister for Industrial Affairs (SA) (1995) 183 CLR 552. Section 14(3) of the Shop Trading Hours Act 1977 (SA) required shops to be closed on Sundays. Section 13(6) enabled the Governor to alter closing times in a shopping district by proclamation, but only where the Minister had certified that a majority of interested persons desired the alteration. Failing to comply with closing times was an offence, but a defence was provided in respect of exempt shops. The Minister was empowered by s5 to grant exemptions. The Minister announced the introduction of general Sunday trading in the Adelaide Central Shopping District during certain hours. He did not proceed under s13, but exempted specified shops from the provisions of the Act between those hours on Sundays. The High Court held that while s5 enabled the Minister to exempt a specific shop from the operation of the Act, it did not enable an alternative regime of trading hours to be laid down, and could not be used to vary or displace generally the hours prescribed by the Act. One of the reasons for this conclusion was that if it were possible to grant exemptions prescribing hours different from those required by the Act, the protections which s13 afforded to interested persons might be by‑passed, and this could not have been the intention of the legislature. By analogy, counsel for the applicant submitted that the legislature could not have intended that the Commissioner could, by use of his powers over tax agents, punish or make life difficult for them, and thus avoid the protection given to agents in proceedings before the Tax Agents’ Board.

An improper purpose will not lightly be inferred.  Because of the presumption of regularity, it will only be inferred if the evidence cannot be reconciled with the proper exercise of the power: Industrial Equity at 672. The epithets employed by the applicant’s counsel to describe the Program or the effect of the decision to include him in it - the education and discipline of tax agents, the supervision and control of the professional activities of tax agents, the sanctioning of agents - all take too narrow a view of the purpose and object of the Program. In Industrial Equity at 661 the joint judgment distinguishes between the reason for performing an act and the purpose sought to be achieved by doing it:

“The reason for the taxation audit of IEL was said to be IEL’s membership of the group of top hundred companies, the Commissioner having a policy to conduct audits of companies falling within that category.  However, the purposes of the audit of IEL are certainly not limited to the implementation of that policy.

Moreover, as the reason given for the selection of IEL did not alter the nature of the audit conducted, the purposes of the Commissioner’s decision to audit IEL may also be determined from the purposes inherent in the nature of a taxation audit, the most immediate being the ascertainment of the taxable income of the taxpayer.”

As was pointed out in Industrial Equity, the Commissioner does not have the resources to audit every taxpayer, and the selection of some taxpayers for audit may be random but nevertheless for the purposes of the Act: at 660, 662. So in the present case, the selection of some tax agents and thus some taxpayers may be random without detracting from the purpose of the Program of encouraging compliance with the tax law with a view to ascertaining the true taxable incomes of individual members of a group of taxpayers. It can fairly be said that the selection of tax agents as the vehicle for encouraging taxpayers to comply with the law is “simply a means to that end”: Samrein at 470. It is to be remembered that the Program does not simply involve tax agents collecting receipts and filling in forms. It also involves meetings between tax agents and the Commissioner’s representatives designed to assist tax agents’ appreciation of how loss to the revenue through false claims can be reduced by their adoption of more rigorous professional standards in the preparation of returns.

The fact that participation in the Program may impose a financial burden on tax agents, which they feel, in a competitive environment, they are unable to pass on to their clients, cannot demonstrate that the Program is being used to achieve an improper purpose.

The provisions of the Act dealing with the Tax Agents’ Board do not give rise to any implication that the Commissioner cannot investigate and seek to improve the work practices of tax agents. Those provisions deal with the registration of tax agents and the cancellation and suspension of registration, and the “safeguards” relied on by the applicant reflect the serious consequences that may flow from cancellation and suspension. But in administering the Program the Commissioner is not purporting to intrude upon the area marked out for the Board. The Board’s power to deal with tax agents for unprofessional behaviour doubtless has as one of its purposes encouraging agents to maintain professional standards, and thus advance on a broader front the same purpose as that which lies behind the Program. But that coincidence of purpose does not disclose a legislative intention of the type discerned in the Shop Trading Hours Case.

CONCLUSION
The challenged decision was within the scope of and was made for the purposes of the Act, and accordingly does not constitute an improper exercise of power on the ground that it was made for a purpose other than a purpose for which the power to make it was conferred.

The application must be dismissed.

I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg 

Associate:

Dated:            15 September 1997

Counsel for the Applicant:	H C Berkeley QC and N Rosenbaum
Solicitors for the Applicant:	Rigby Cooke
Counsel for the Respondent:	A Cavanough QC and T Murphy
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	1 September 1997